Why T-Mobile's new plans won't end contract madness

In a bid to escape from its basement slot among nationwide cellular carriers, T-Mobile has unveiled a radical new pricing system that departs from the contract plans mobile users have grown used to hating.

To be sure, the new plans are a welcome injection of out-of-the-boxitude that can only benefit consumers. Still, “different” doesn’t always translate to “better.” T-Mobile may have branded its new payment plan as the “Simple Choice,” but users may be forced to take out a calculator and crunch some numbers to figure out if it’s truly the right choice for them.

Digging into the details

Mobile consumers have shown a willingness to spend up to $200 as a subsidized rate to get the hottest, newest, shiniest toy in their pocket on top of $100 per month in monthly coverage charges. Aside from tech journalists, though, most users probably don’t spend too much time ruminating on how the major carriers subsidize the cost of these bleeding-edge gadgets so as make their money back over the life of the two-year, locked-in contract. That’s just the way it was when dealing with the major carriers in the smartphone era. Until now.

On Tuesday, T-Mobile announced its plan to offer phones without subsidies attached to no-commitment contracts that begin at only $50/month for one phone. Sounds reasonable so far. We all hate tying ourselves to one provider for the next two years, right?

T-Mobile’s plans offer unlimited talk, text, and data—and even mobile hotspot ability. The catch is you’re limited to 500MB of data on T-Mobile’s newly unleashed 4G LTE plan. Hit that ceiling, and you’re kicked down to the company’s slower data infrastructure. Consumers have the option of buying additional 4G access up to 2GB for an additional $10 per month, or truly unlimited 4G access for an additional $20 per month.

My colleague Jared Newman crunched the numbers and found that, depending on what plans you use and your digital habits, the cheaper answer is not always clear cut. For example, you could find a cheaper option over the course of two years if you compare the Samsung Galaxy S III on AT&T’s least expensive plan versus buying the full cost of the phone from T-Mobile and signing up with its unlimited plan. However, he also found instances where you would pay up to $600 more for the same phone on comparable plans on Verizon over the course of a two-year contract.

In the latter example, T-Mobile may be the way to go. However, if you are an AT&T user who, like me, spends much of their time in Wi-Fi range, and hardly ever texts, then the limited AT&T plan may still prove to be your best option.

As stated earlier, the new unsubsidized, unlimited T-Mobile plans may benefit some consumers, but they certainly don’t mark the end of the monthly contract for everyone. Why? Four reasons come to mind:

• T-Mobile’s LTE network is fledgling. The service is only launching in seven markets for now and it may be a while until users throughout the country can access all that tasty 4G goodness. If you don’t live in one of the seven metro areas in T-Mobile’s initial offering or want to travel and need your data on the road, then T-Mobile may not be for you—at the moment.

• No-commitment doesn’t necessarily mean no catches. Many consumers will probably take advantage of T-Mobile’s layaway plans that allow customers to pay a relatively low down payment and chip away at the cost of their phone on a monthly basis. For example, a new T-Mobile customer has the option of paying $589 for the Galaxy S III at check-out, or they can put $110 down with a $20 monthly payment for up to 24 months. (Sounds a lot like a two-year contract, huh?). Now, if that user were to leave T-Mobile early, they would be on the hook for the rest of the price of that device. It doesn’t matter at what point they break off the relationship. In contrast, if the same customer were to leave their current carrier before the end of the contract, the early termination fees would be capped at $350.

• Existing device owners don’t get much of a break. Already own a compatible smartphone you are happy with? T-Mobile has the option to bring it onto their unlimited no-contract plan starting at $70-per-month or $60-per-month for two phones. As you may notice, those prices aren’t radically different than what the other carriers offer.

• Smartphones tend to only live for about two years. We’ve all heard the conspiracy theories about how expensive gadgets always seem to go belly-up at the end of their warranty or when our coverage content ends. We’ve probably experienced that a few times ourselves. It’s not even just a matter of hardware—update cycles in mobile operating systems could mean the phone you buy now may not even be able to support new features in a few years. If you decide to opt for T-Mobile, you should factor in the cost of buying a whole new crazy gadget in a few years.

Again, this new T-Mobile plan gives consumers more options. And options are always a good thing that will lead to more competition among carriers as they look for ways to convince us to part with our money. So while we should give a tip of the hat to T-Mobile’s way, don’t expect contracts and subsidized smartphones to disappear any time soon.